THE ULTIMATE GUIDE TO DIGITAL

BANKING TOOLS AND STRATEGIES

OCTOBER 2017
www.wup.digital
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This paper provides advice and outlines best practices to prepare businesses to effectively tackle
digital disruption. To keep their competitive advantage, banks need to develop the right strategy and
organization, use the appropriate digital methods and tools, apply the latest fintech developments,
understand customers better, form the right partnerships with expert contributors and get proactive
with clients.

Banks are increasingly advised to adopt new approaches to their traditional workflow and redesign
their organizations to meet the challenges of digital transformation. Flexibility and rapid response
to changes have never been more important for financial institutions to remain ahead of the
competition. This mindset should be at the very heart of businesses, especially when it comes to
digital development, where a variety of solutions and novel approaches are already available.

USE CLOUD-BASED SERVICES

Many financial institutions use cloud-based applications today for non-core business areas, such as
HR, CRM and accounting. But as the cloud environment improves and enterprises get comfortable
with the new technology, the cloud ecosystem is gradually becoming a primary tool for core activities
as well. Core service infrastructures in areas such as consumer payments, credit scoring, and
statements and billings for asset managers’ basic current account functions will be well on the way
to becoming utilities by 2020, PwC predicts.1

Using cloud-based services could help banks respond to growing competition, expand their
brands, avoid risk and better manage security, according to a study by Accenture. 2 Considering the
operational advantages and cost-effectiveness of cloud technology, banks should look into ways to
restructure their IT infrastructure and realign business processes.

FIND A GOOD MOBILE APP

With the number of smartphone subscriptions projected to increase to 6.8 billion by 2020 from 3.9
billion in 2016 3 and mobile internet use exceeding desktop, 4 banks should focus on mobility and
offer dedicated applications to their customers.
When it comes to banking and finance, a survey by Google suggests that people increasingly turn to
their smartphones and use applications to handle several aspects of their finances.5

1 Financial Services Technology 2020 and Beyond: Embracing disruption, PcW, 2016

2 The Everyday Bank - The Role of Cloud Computing in the Future of Banking, Accenture, 2015

3 Ericcson Mobility Report, November 2016

4 Mobile and tablet internet usage exceeds desktop for first time worldwide, StatCounter, 2016

5 How people use their phones for finance activities, Google, 2016

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FIGURE 1: Top activities by individuals using mobile financial applications

Source: How people use their phones for finance activities, Google, 2016

Most companies focusing on e-commerce have

already turned to mobile apps enabling incremental API, Open API:

sales. Adidas, for example, reported a 59% growth An open API (often referred to as a

year-over-year in its e-commerce division after sales Public API) is a publicly available

hit the €1 billion mark for the first time in 2016. application programming interface that

According to the German sports brand, the growth grants developers programmatic access

can partly be attributed to its efforts in mobile to a proprietary software. APIs are

commerce, particularly the successful introduction sets of requirements that govern how

of a mobile application which is based on a model one application can communicate and

where growth comes from direct consumer referrals interact with another.

and the company rewarding those people who bring

in new customers. Adidas expects e-commerce to be the fastest-growing sales channel within the
company, with revenues expected to reach €4 billion in 2020.6

6 Annual Report 2016, Adidas

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Figures from Virgin America show that mobile conversion rates tripled in less than three months
when the company launched its first mobile application in 2014 that enabled purchasing tickets.
Additionally, more than 200,000 users downloaded the app in the same period.7

DO NOT FEAR OPEN APIS

Mobile phone ecosystems were built on and boosted by the notion of third-party software
development: third-party applications add value to existing software. Banks and financial institutions
also increasingly adopt this approach, although many shy away from third-party developments
because of security and other concerns. Banks should prepare for regulatory changes, like the
introduction of PSD2 in the EU, 8 which also stimulate the banking sector to accommodate the trend.

Many major players have already decided to share their data: in November 2016, Citi launched an
API Developer Hub to connect with developers and enable them to build innovative client solutions.
Also, the company announced collaborations on specific development projects with several partners,
including Mastercard and Virgin Money.

HSBC launched its Open Banking API project in December 2016, which provides up-to-date
information about the location and facilities of HSBC branches and ATMs, detailed product
information for personal and business current accounts, lending to small to medium enterprises
and commercial credit cards. HSBC plans to deliver new APIs by early 2018 to allow personal
customers and small businesses to share data securely with other banks and trusted third parties.
Besides, in June 2017 HSBC started a digital B2B platform for its business clients to connect with
each other. The solution, titled HSBC Connections Hub, is designed to let the bank’s clients to use
HSBC’s network to interact with potential business partners around the world. Customers create a
business profile for their brand, including company information, products, locations and activities. A
smart search algorithm will then highlight potential buyers and sellers in other markets. Alternatively,
customers can look up the profiles of specific businesses using search variables.

7 Work&Co, 2014

8 Payment services (PSD2) - Directive (EU) 2015/2366

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HUMANS CAN’T SCALE, MACHINE LEARNING CAN

Many decision-makers might still consider the need to apply machine learning technology negligible.
But a recent study by Juniper found that the integration of artificial intelligence (AI) is likely to gain
substantial benefits – due to the highly data‑driven nature of the banking market – and spending on
machine learning in fintech may grow tenfold by 2022.9

Several AI-based solutions are expected be fully integrated into the core processes of financial
institutions in the next 3-5 years. These may include intelligent chatbots, fraud prevention and
detection methods, market abuse and rouge trading recognition, automated customer journey
analytics based on pattern analysis and smart predictions for personalized offers.

In 2016, JPMorgan launched a predictive recommendation engine to identify those clients who
should issue or sell equity. Given the initial success, in 2017, the company expanded it to other areas,
like debt capital markets, similarly basing predictions on client financial data, issuance history and
market activity.10

AI-based marketing automation systems can perform many of the resource-consuming tasks
related to marketing activities and enhance outcomes. One recent example from Harley Davidson
NYC shows how teaming up with a fintech company to develop an AI-based marketing intelligence
software helped boosting digital sales to an all-time high. Prior to using this new technology, Harley-
Davidson NYC’s all-time sales record was eight motorcycles in a single weekend. In its first two-
day campaign, the AI almost doubled this record, selling 15 bikes.11 After six months, the company
credits 40% of its motorcycle sales to AI-supported marketing efforts.

Using campaign goals, advertisements and KPIs provided by the brand, key features of the system
include:

• Identifying new audiences

• Defining top-performing ad concepts and elements, and prioritizing them across channels
• Discovering unique behavioural patterns that trigger specific actions
• Predicting optimal pricing and reallocating budget to the best-performing channels
• Optimizing millions of keywords and test thousands of ad variations simultaneously

9 Fintech Dynamics, Disruption & Future Opportunities 2016-2021, Juniper Research, 2016

10 Annual Report 2016, JPMorgan Chase & Co.

11 Harley-Davidson NYC Taps Artificial Intelligence Platform “Albert”, 2016

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FIGURE 2: Traditional and non-traditional customer data in banking services

TRADITIONAL DATA

Essential information Purchase history Demographic background

• Name • Dates of purchases • Gender
• E-mail • Amounts paid • Age
• Phone number • Items purchased • Marital status
• Address • Discounts or promotions used • Family data (kids, pets etc.)
on purchase • Individual/household income
• Frequency of transactions • Occupation

NON-TRADITIONAL DATA

Auxiliary data Online behavioural patterns Geolocation data

• Social media profiles
and activity
• Customer experience
feedback, data from
surveys
• Frequency of website visits
• Days and times most active
online
• Page views
• E-mail open and click rates
• Website referrals
• Regular daily routes of
customers
• Locations and dates (home,
work, holiday, weekend)
• Moving , travelling (trips, stops)
• Merchants regularly visited or
passed by
• Visualisation

Source: W.UP, 2017

AGGREGATE DATA FOR BETTER CUSTOMER INSIGHTS

Information gathered from transactions, customers and other business-relevant sources may help
banks reinforce customer relation management, boost offer conversion rates and even increase
up-sell rates.12 It is key to understand the nature of data and develop a strategy to use it effectively.
To get better customer insights, banks should aggregate data captured via a number of channels.
All personal information and banking data, including transactions history, could be available in one
single portfolio, making it possible for banks to better understand their customers and offer tailor-
made banking experience.
Collecting and aggregating information from traditional and non-traditional data sources will enable
financial institutions to create in-depth customer insights via detailed client profiles.

12 Banking on Digital Simplicity, Boston Consulting Group, 2016

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To realign marketing activities, banks should develop a company-wide analytics strategy, driving a
shift towards a truly data-driven customer relationship management. This also means embedding
analytics into core business processes and hiring people or third-party service providers with skills
to apply the right data science methods, as well as envision well-defined and actionable insights.

A valuable component of complex customer insights incorporating non-traditional data could be

geo-location information, which may include specific co-ordinates of general locations or merchants
customers regularly visit, routes they travel daily or everyday habits they developed. These data are
based on signals of mobile devices and could be visualised in the form of detailed maps to help
better understand customer behaviour.

ENHANCE YOUR CRM CAPABILITIES

Based on accurate, dynamic and well-structured client insights, banking CRMs should be able to take
that next step. For example, in 2013 Hungarian bank MKB decided to channel all customer-related
processes to a new, third-party application, which improved customer service times by 25 percent,
decreased customer churn by 5 percent and increased profits on the primary banking customer
segment by 20 percent within a year.13

On top of business-as-usual thinking, customer analytics and CRM leaders are now able to take their
operations to the next level using various strategies:

• Mapping customer journeys: deploying third-party applications or developing in-house tools,

banks will get a deeper understanding of how their customers think and feel when interacting
with them. Identifying the high and low points of the customer journey offers opportunities for
business evolution.
• Building cross-selling capacities: businesses tend to forget about their existing customers.
However, knowing the behaviour and preferences of existing clients enables banks to create
highly personalized offers. Precisely targeted campaigns towards customers will not only result
in incremental revenue, but will also support retaining clientele.
• Keeping up the dialogue: businesses often overlook the importance of ‘ just’ talking to their
customers. Through a wide range of channels (newsletters, live video chat, social media etc.)
today’s CRM systems enable companies to provide feedback, educate and distribute all kinds of
information and content. These efforts will create accountability and develop trust in the brand.

13 Banks put customer first with Microsoft Dynamics CRM, Microsoft, 2013

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ORGANIZATIONAL CHOICES FOR DIGITAL DEVELOPMENT
Banks have a wide range of day-to-day IT requirements, including managing infrastructure,
maintaining a high-security environment for financial data and serving the specific needs of various
departments. When it comes to any kind of new digital investment, one obvious question arises at
the very beginning: who will do the job?
FIGURE 3: Digital development: In-house vs external
In-house
• Easier to oversee project management
• More efficient communication
• Core knowledge remains in-house
• Reduces behavioural conflicts
• More cost-effective in the long term
Advantages
• Easier to own and secure proprietary
source code
• Might require expanding workforce and
restructuring the organization
• More expensive in the short term (payroll,
training, organizational development,
workspace, software licenses, equipment
Cons
etc.)
• Steep learning curve for existing
employees and new hires
• Less economic to employ highly
specialized experts with unique knowledge
and skills
Source: W.UP, 2017
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External
• Substantially reduces initial costs by
eliminating expenses on developing
workforce and infrastructure
• Easier to access highly specialized
expertise
• Allows more flexibility in project
management
• Advanced scalability: easier to adjust
resources to unexpected changes and
situations in the development process
• Specialized agencies own know-how, even
pre-existing components and tools for
developing niche projects
• Communication with external contributors
might require more resources
• Requires creating accurate legal framework
defining work processes, response times,
liability, ownership of intellectual property
etc.
• Third-party access to highly secure
banking data and processes might require
elevated security protocols
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Historically, companies had usually opted for keeping development in-house, but some factors,
including finding novel financial strategies to deal with expense cuts and the speed at which
technology progresses have driven more and more enterprises to outsource development projects or
specific tasks to external providers.

Outsourced vs in-house software development is a debate that has been going on for a long time.
Both approaches have their benefits, and the right answer depends on the actual strategy, project or
situation: companies should consider many factors (corporate culture, long-term strategies, product
development itineraries, costs etc.) choosing either way. In a lot of cases a hybrid approach is legit.

Serving the individual, not the masses – Digital transformation enables companies to obtain more
detailed and relevant customer data, and use it for analytic intelligence to determine and align
customer interaction.

Today, basic profiling and segmentation of the customer base is a part of every customer
relationship management system. However, sourcing and applying additional information can elevate
marketing capabilities to a higher level. One specific method is using life events of customers to
prompt individualized actions or messages: based on the concept that major changes in life might
affect buyer behaviour, marketers need to understand the current personal situation of the consumer
and treat them accordingly.

A variety of life events can be captured and used as a trigger point for contextually relevant
marketing activities:

• Graduating
• Starting a career
• Having a child
• Losing a job/career changes
• Selling or buying property
• Buying a car
• Getting sick
• Retirement
• Overspending
• Travelling abroad

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Identifying a trigger point and using it appropriately offers a reason to engage with the customer,
might open up a new sales opportunity, allows for updating customer data and might lead to
increased likelihood for customer action.

Companies can gather their own actionable customer insights via multiple channels (personal
meetings, surveys, direct phone approaches etc.), while specialized fintech agencies are able
to supplement other non-traditional data like weather information, social media interaction and
customer behaviour patterns.
Proactive banking – Besides offering a personalized banking experience, a deeper understanding
of customers allows banks also to switch to a proactive attitude in customer service and sales
activities. With relevant data and smart insights integrated with marketing automation, companies
will be able to send better targeted messages, provide premium services and even initiate
transactions.

FIGURE 4: Example of proactive bank-to-customer approach based on actionable insights

and situational awareness

1. Campaign: how to increase

A customer is near a sportswear store
credit card usage?

Relevant data available:

• Personal profile
• Transaction history
2. The customer’s bank reacts • Location data
in real-time
• Leisure/sports profile
• Current discounts at partner stores
Push notification: 15% off on running shoes

The customer walks into the store and uses bank card to activate
3. Immediate action
the offer on the purchase

Source: W.UP, 2017

Additionally, going proactive, companies can enhance service convenience to a premium level. Let’s
say a customer is at the airport near their area:

• They are likely to be travelling abroad

• Bank uses basic customer profile, card information and location data
• Bank identifies that the customer’s bank card is not set to an adequate limit
• Via a push notification, the mobile banking app offers a one-tap solution to adjust limit to a pre-
calculated value

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SUMMARY

With the recent and ongoing shift to digital sales channels in finance, banks aspiring to stay compet-
itive must adapt to a swiftly changing business environment. Accommodating a relatively slow and
overly deliberate approach to digital development, many banks cannot keep up with today’s rapid
transition. Financial institutions need to rethink their working schemes and implement more agile
development processes.
The rise of fintech agencies might contribute to this crucial transformation: banks, using the different
approaches and know-how of these companies, can easily gain and retain a competitive edge over
other industry players.

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